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Has the yuan become a 'safe haven' trade?

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The U.S. dollar's bull run has been a headwind for Asian currencies in recent months, but one outlier is swimming against the tide: the Chinese yuan.

The yuan, which is still tightly controlled by the Chinese central bank, rose 1 percent against the U.S .dollar over the past three months. By contrast, the South Korean won, Indonesian rupiah and Indian rupee declined 6.2, 4.8 and 2.7 percent against the dollar, respectively.

"The CNY has proven to be a safe haven in an environment of a strong USD and it will continue to perform this role," Darius Kowalczyk, senior economist and strategist, Asia ex-Japan at Credit Agricole wrote in a note on Thursday.

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What's driving the currency?

There are three factors supporting yuan: record trade surpluses, surging foreign demand for onshore financial assets amid a gradual capital account opening and demand for currency as a store of value and medium of payment, according to Credit Agricole.

"The main reason for our bullish view on the CNY is China's trade in goods surplus, which in the summer rebounded strongly after slumping in the winter and during the start of spring," Kowalczyk said.

China's trade surplus is expected to hit a record $377 billion this year, with the second-half accounting for $274 billion or 73 percent, according to Credit Agricole.

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How strong will it get?

Kowalczyk forecasts the yuan will strengthen to 6.0 against the greenback by year-end, 2 percent above current levels. The dollar-yuan traded around 6.1385 on Thursday.

"China's massive trade surplus, foreign portfolio inflows and internationalization will push the spot rate towards the upper end of the trading band," he said.

"At the same time, the band itself will continue to appreciate as the PBoC (People's Bank of China) has been increasingly accepting of CNY gains given China's strong export growth and its drive to boost domestic demand," he added.

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The PBoC controls the yuan through a daily fixing and a trading band. In March, the central bank widened the trading band, allowing the yuan to rise or fall 2 percent from its daily fixing from 1 percent previously.

Not so fast

Hamish Pepper, strategist at Barclays doesn't expect the yuan to continue appreciating.

"Given China's weaker growth trajectory and the PBoC's easing bias, it doesn't make sense for them to materially appreciate the currency further," Pepper told CNBC.

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The bank forecasts the currency will end the year at 6.23 or 1.6 percent below current levels.

"We are assuming that currency depreciation will be part of [the PBoC's] overall policy to mix to stimulate growth," he said.

Last month, Barclays downgraded its projections for China's 2014 gross domestic product growth to 7.2 percent, from 7.4 percent. It expects the central bank to cut benchmark interest rates and unveil additional targeted easing measures to bolster growth in the coming months.